Abstract

This paper explores the impact of target CEOs’ retirement preferences on takeovers. Using retirement age as proxy for CEOs’ private merger costs, we find strong evidence that target CEOs’ preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65.

Takeover premiums and target announcement returns are similar for retirement-age and younger CEOs, implying that retirement-age CEOs increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals at retirement age.